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VOL. 127 | NO. 15 | Tuesday, January 24, 2012

Morgan Keegan Deal Coming Into Focus

By Andy Meek

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The $930 million deal reached earlier this month in which Raymond James Financial Inc. is buying Morgan Keegan & Co. Inc. isn’t scheduled to close for several more weeks. Regulatory approvals are needed, plus there’s a lot of work ahead to integrate the two investment firms.

But the implications of the deal are slowly coming into focus.

Announced earlier this month, the sale is the culmination of more than six months of negotiating between multiple parties that came and went before Raymond James appeared to gain the upper hand late in the process.

So far, the deal looks like it could have the opposite effect on the buyer’s and seller’s credit ratings.

Fitch Ratings, for example, has announced there will likely be no impact on the ratings of Morgan Keegan’s parent company, Birmingham, Ala.-based Regions Financial. But Standard & Poor’s Rating Services has put St. Petersburg, Fla.-based Raymond James under review for a possible ratings downgrade.

In a recent announcement, Fitch said the $930 million purchase price for Memphis-based Morgan Keegan came in below earlier media reports “but within Fitch’s expectations.” Fitch also noted the pending sale may help Regions pay back its $3.5 billion Troubled Asset Relief Program (TARP) investment from the federal government and could serve to “remove some uncertainty in investors’ minds.”

S&P, meanwhile, said Raymond James’ purchase of Morgan Keegan has some downsides that could spell trouble for the Florida firm. One problem the ratings agency noted: it believes Raymond James lacks the depth of management to accomplish a merger of this size.

“We could lower the rating if management doesn’t demonstrate an effective plan for integration and doesn’t retain enough high-revenue producers to justify the price paid for the company,” S&P announced. “We could also consider lowering the rating if the addition of Morgan Keegan’s assets significantly lowers the overall quality of the combined assets on the balance sheet.”

Last week, Raymond James held an open house-style session at its international headquarters for more than 80 branch managers and administrative staff of Morgan Keegan.

Those Morgan Keegan employees and managers met with Raymond James department heads, corporate executives and private client leadership.

In his welcome remarks, Raymond James chairman Tom James said, “We wish to reinforce Raymond James’ commitment to conservatism in decision making, to independence for the company and for its advisers, and to integrity, which cements the relationship of trust with clients and is integral to long-term success.”

It was a major welcome staged for Morgan Keegan that included presentations from much of Raymond James’ top brass, such as CEO Paul Reilly.

“I manage a team of 11 advisers in Lexington, Kentucky,” said Morgan Keegan branch manager Rob Brewer in a statement released after the presentation. “And I cannot wait to get back to share all this good news with my team. I am particularly excited about their commitment to adviser technology and the integration and simplification of the desktop. These tools will help our (financial advisers) better serve the needs of their clients.”

PROPERTY SALES 98 172 17,556
MORTGAGES 101 194 20,229
BUILDING PERMITS 223 349 36,295
BANKRUPTCIES 52 115 11,279